Dovish Commentary

Price action suggests that markets are preparing for a dovish commentary from Yellen.

December 3, 2013:

“The two biggest supporters of US Fixed income are the FED and foreign central banks. The FED is still buying roughly 80 % of all net bond issuance and approximately 60 % of all 10y issuance. In addition, foreign central banks have re-added the UST holdings they cut (and then some) from the summer.” (Goldman Sachs)

Percent of incremental duration of Treasury absorbed by the Federal Reserve.

Percent of Incremental Duration of Treasury absorbed by the Fed

“We now hold roughly 20 percent of the stock and continue to buy more than 25 percent of the gross issuance of Treasury notes and bonds. Further, we hold more than 25 percent of MBS outstanding and continue to take down more than 30 percent of gross new MBS issuance. Also, our current rate of MBS purchases far outpaces the net monthly supply of MBS. We own a significant slice of these critical markets.” (Dick Fisher, Dallas Fed)

Gordian Knot

February 10, 2014:

According to WSJ Fed watcher Jon Hilsenrath, The Federal Reserve is likely to continue scaling back its QE program despite the disappointing nonfarm payrolls report on Friday. The FOMC has cut the Fed’s bond-buying program by $10B in each of its last two meetings and is set to trim purchases by another $10B at its next get together in March.

“Taper path should be steady, absent significant change in Outlook.” (Goldman Sachs)

Taper

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